REPORT ON EXAMINATION

OF

TOWER HILL SELECT INSURANCE COMPANY

GAINESVILLE, FLORIDA

AS OF

DECEMBER 31, 2005

BY THE OFFICE OF INSURANCE REGULATION

TABLE OF CONTENTS LETTER OF TRANSMITTAL...................................................................................................................... -

SCOPE OF EXAMINATION...................................................................................................... 1

HISTORY ...................................................................................................................................... 2 GENERAL ..................................................................................................................................... 2 CAPITAL STOCK ........................................................................................................................... 2 PROFITABILITY OF COMPANY ...................................................................................................... 3 DIVIDENDS TO POLICYHOLDERS .................................................................................................. 3 MANAGEMENT............................................................................................................................. 3 CONFLICT OF INTEREST PROCEDURE............................................................................................ 5 CORPORATE RECORDS ................................................................................................................. 5 ACQUISITIONS, MERGERS, DISPOSALS, DISSOLUTIONS, AND PURCHASE OR SALES THROUGH REINSURANCE.............................................................................................................................. 5 SURPLUS DEBENTURES ................................................................................................................ 6

AFFILIATED COMPANIES ...................................................................................................... 6

ORGANIZATIONAL CHART ................................................................................................... 7

FIDELITY BOND ........................................................................................................................ 8

PENSION, STOCK OWNERSHIP AND INSURANCE PLANS ............................................ 8

STATUTORY DEPOSITS........................................................................................................... 8

INSURANCE PRODUCTS AND RELATED PRACTICES.................................................... 8 TERRITORY .................................................................................................................................. 8 TREATMENT OF POLICYHOLDERS................................................................................................. 9

REINSURANCE ........................................................................................................................... 9

ASSUMED..................................................................................................................................... 9 CEDED ......................................................................................................................................... 9

ACCOUNTS AND RECORDS.................................................................................................. 10MANAGING GENERAL AGENCY AGREEMENT............................................................................. 10 CLAIMS SERVICES AGREEMENT................................................................................................. 10 MANAGING SERVICES AGREEMENT ........................................................................................... 11 TAX SHARING AGREEMENT ....................................................................................................... 11 CUSTODIAL AGREEMENT ........................................................................................................... 11 RISK-BASED CAPITAL................................................................................................................ 11

FINANCIAL STATEMENTS PER EXAMINATION............................................................ 12 ASSETS ...................................................................................................................................... 12 LIABILITIES, SURPLUS AND OTHER FUNDS ................................................................................ 13 STATEMENT OF INCOME............................................................................................................. 14

COMMENTS ON FINANCIAL STATEMENTS.................................................................... 15

LIABILITIES................................................................................................................................ 15

COMPARATIVE ANALYSIS OF CHANGES IN SURPLUS............................................... 16

SUMMARY OF FINDINGS ...................................................................................................... 17

SUBSEQUENT EVENTS........................................................................................................... 17

CONCLUSION ........................................................................................................................... 18

Tallahassee, Florida September 20, 2006 Kevin M. McCarty Commissioner Office of Insurance Regulation State of Florida Tallahassee, Florida 32399-0326 Dear Sir: Pursuant to your instructions, in compliance with Section 624.316, Florida Statutes, and in

accordance with the practices and procedures promulgated by the National Association of

Insurance Commissioners (NAIC), we have conducted an examination as of December 31, 2005,

of the financial condition and corporate affairs of:

TOWER HILL SELECT INSURANCE COMPANY

7201 N.W. 11th Place Gainesville, Florida 32605

Hereinafter referred to as, the “Company”. Such report of examination is herewith respectfully

submitted.

1

SCOPE OF EXAMINATION

This examination covered the Company inception period of June 24, 2004 through December 31, 2005.

This was a first year exam. This examination commenced with planning at the Office, on April 3, 2006,

to April 5, 2006. The fieldwork commenced on April 10, 2006 and was concluded on September 20,

2006. The examination included any material transactions and/or events occurring subsequent to the

examination date and noted during the course of the examination.

This financial examination was a statutory financial examination conducted in accordance with the

Financial Condition Examiners Handbook, Accounting Practices and Procedures Manual and annual

statement instructions promulgated by the NAIC as adopted by Rules 69O-137.001(4) and 69O-

138.001, Florida Administrative Code, with due regard to the statutory requirements of the insurance

laws and rules of the State of Florida.

In this examination, emphasis was directed to the quality, value and integrity of the statement assets

and the determination of liabilities, as those balances affect the financial solvency of the Company.

The examination included a review of the corporate records and other selected records deemed

pertinent to the Company’s operations and practices. In addition, the NAIC IRIS ratio report, the A.M.

Best Report, the Company’s independent audit reports and certain work papers prepared by the

Company’s independent certified public accountant (CPA) were reviewed and utilized where applicable

within the scope of this examination.

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We valued and/or verified the amounts of the Company’s assets and liabilities as reported by the

Company in its annual statement as of December 31, 2005. Transactions subsequent to year-end 2005

were reviewed where relevant and deemed significant to the Company’s financial condition.

This report of examination is confined to financial statements and comments on matters that involve

departures from laws, regulations or rules, or which are deemed to require special explanation or

description.

HISTORY

General

The Company is a domestic insurer that was licensed to write insurance only in the State of Florida. It

was incorporated on April 16, 2004 and commenced writing business on June 24, 2004 with the

issuance of its Certificate of Authority as an authorized domestic insurer in the State of Florida. The

Company was authorized to write Fire, Allied Lines, Homeowners Multi-Peril and Inland Marine. The

Company has not reported written premium in the Allied Lines or Fire lines of business; however, the

Company has premiums in these lines related to the issuance of their Homeowners Multi-Peril line of

business. Tower Hill Capital Holdings, LLC (Parent), owns 100% of the Company.

Capital Stock

As of December 31, 2005, the Company’s capitalization was as follows:

Number of authorized common capital shares 100,000

Number of shares issued and outstanding 100,000

Total common capital stock 100,000

Par value per share $1.00

3

Control of the Company was maintained by its parent, Tower Hill Holdings, Inc. (THH), who owned

100% of the stock issued by the Company. THH was 100% owned by William J. Shively.

Profitability of Company

The following table shows the profitability trend (in dollars) of the Company for the period of

examination, as reported in the filed annual statement.

2005 2004

Premiums Earned 6,581,745 463,174 Net Underwriting Gain/(Loss) (28,735) (334,752)

Net Income 58,614 (371,475)

Total Assets 34,265,850 14,111,629

Total Liabilities 20,246,638 8,327,523 Surplus As Regards Policyholders 14,019,212 5,784,106

Dividends to Policyholders

There were no dividends to policyholders reported by the Company during the period of examination.

Management

The annual shareholder meeting for the election of directors was held in accordance with Sections

607.1601 and 628.231, Florida Statutes. Directors serving as of December 31, 2005, were:

4

Directors

Name and Location Principal Occupation

William John Shively, Chairman CEO of Tower Hill Insurance Group Gainesville, FL Phillip Martin Thomasson President of Tower Hill Insurance Group Gainesville, FL Donald Carl Matz, Jr. COO/Secretary of Tower Hill Insurance Group Gainesville, FL Keyton Benson Chief Claims Officer of Tower Hill Insurance Group Gainesville, FL Brian Thomas Sheekey CFO/Treasurer of Tower Hill Insurance Group Gainesville, FL The Board of Directors in accordance with the Company’s bylaws appointed the following senior

officers:

Senior Officers

Name Title

Phillip Martin Thomasson President Brian Thomas Sheekey Treasurer William John Shively CEO Donald Carl Matz, Jr. COO/Secretary

The Company’s Board appointed an Audit Committee in accordance with Section 607.0825, Florida

Statutes, as follows:

Audit Committee

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Phillip Martin Thomasson, Chairman Donald Carl Matz, Jr. William John Shively Conflict of Interest Procedure

The Company adopted a policy statement requiring annual disclosure of conflicts of interest, in

accordance with Section 607.0832, Florida Statutes. No exceptions were noted during this examination

period.

Corporate Records

The recorded minutes of the shareholders, Board of Directors and Audit Committee meeting were

reviewed for the period under examination. The recorded minutes of the Board adequately

documented its meetings and approval of Company transactions in accordance with Section

607.1601, Florida Statutes.

The minutes of the Board of Directors recorded that the Board established an Audit Committee as

provided by Section 624.424(8)(c), Florida Statutes, and approved the Company’s investments as

required by Section 625.304, Florida Statutes.

.

Acquisitions, Mergers, Disposals, Dissolutions, and Purchase or Sales through

Reinsurance

There were no acquisitions, mergers, disposals, dissolutions, and purchase or sales through

reinsurance during the period under examination.

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Surplus Debentures

As of December 31, 2005, there were no outstanding surplus debentures of the Company.

AFFILIATED COMPANIES

The Company was a member of an insurance holding company system as defined by Rule 69O-

143.045(3), Florida Administrative Code. The latest holding company registration statement was filed

with the State of Florida on October 11, 2005, as required by Section 628.801, Florida Statutes, and

Rule 69O-143.046, Florida Administrative Code.

An organizational chart as of December 31, 2005, reflecting the holding company system, is shown

below. Schedule Y of the Company’s 2005 annual statement provided a list of all related companies

of the holding company group.

TOWER HILL SELECT INSURANCE COMPANY ORGANIZATIONAL CHART

DECEMBER 31, 2005

William J. Shively

Tomoka Re Holdings,

Inc.

Tower Hill Preferred Insurance Company

Tower Hill Holdings, Inc.

Ownership: - W.J.Shively 57.1% - Renaissance Re Ventures, Ltd. 28.6% - Benfield Investment Holdings, Ltd. 14.3%

Tower Hill Prime

Insurance Company

Tomoka Re Intermediaries,

Inc.

Alachua Capital Corp.

Tomoka Reinsurance Company,

Ltd.

W.T. Shively Agency, Inc.

Tower Hill Select

Insurance Company

Paddock Insurance

Agency, Inc.

ICS Software Acquisition, Inc.

Insurers Computer Services,

Inc.

• Tower Hill Claims Service, Inc.

• Tower Hill Claims Management, Inc.

• Tower Hill Capital Holdings, LLC

• Tower Hill Ins. Group, Inc.

• Tower Hill Ins. of the Carolinas, Inc.

• Tower Hill Commercial Ins., Inc.

• Tower Hill Select Holdings, LLC

• Tower Hill Partners, Inc.

• Omega Ins. Co.

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8

FIDELITY BOND

The Company maintained fidelity bond coverage of $3,100,000 with a $50,000 deductible per

occurrence. The Company was a named insured on the fidelity bond and included all companies

owned by William J. Shively. Considering the financial information of all companies, this policy

adequately covered the $1,000,000 suggested minimum amount of coverage for the Company

recommended by the NAIC.

PENSION, STOCK OWNERSHIP AND INSURANCE PLANS

The Company had no employees and therefore had no pension, stock ownership or insurance plans.

STATUTORY DEPOSITS

The following securities were deposited with the State of Florida as required by Section 624.411, Florida

Statutes:

Par Market State Description Value Value FL Cash $ 300,654 $ 300,654 TOTAL FLORIDA DEPOSITS $ 300,654 $ 300,654

INSURANCE PRODUCTS AND RELATED PRACTICES

Territory

The Company was licensed to transact insurance coverage in the State of Florida only and had no

plans to approach insurance markets in other states at this time.

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Treatment of Policyholders

The Company established procedures for handling written complaints and maintained a record of all

complaints received in accordance with Section 626.9541(1) (j), Florida Statutes.

The claims services company, Tower Hill Claims Services, Inc., maintained a claims procedure manual

that included detailed procedures for handling both property and liability claims.

REINSURANCE

The reinsurance agreements reviewed complied with NAIC standards with respect to the standard

insolvency clause, arbitration clause, transfer of risk, reporting and settlement information deadlines.

Assumed

The Company had no assumed business during the exam period.

Ceded

The Company ceded risk on both a quota share and an excess basis. The cash flow analysis

performed on the quota share agreement indicated that there was a transfer of risk within the terms

of the reinsurance contract.

The reinsurance contracts were reviewed by the Company’s appointed actuary and were utilized in

determining the ultimate loss opinion.

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ACCOUNTS AND RECORDS

KPMG, an independent CPA firm, audited the Company’s statutory basis financial statements annually

for all years under review, in accordance with Section 624.424(8), Florida Statutes. Supporting work

papers were prepared by the CPA as required by Rule 69O-137.002, Florida Administrative Code.

The Company’s accounting records were maintained on a computerized system. The Company’s

balance sheet accounts were verified with the line items of the annual statement submitted to the Office.

The Company maintained its principal operational offices in Gainesville, Florida, where this examination

was conducted.

The following agreements were in effect between the Company and its affiliates as of December 31,

2005:

Managing General Agency Agreement

The managing general agency (MGA) agreement was with Tower Hill Insurance Group, Inc. (THIG).

The agreement included the management and direct oversight of the production of business for the

underwriting and policy administration functions. Additionally, THIG facilitated the payment of claims

and other various accounting, reporting and administrative functions.

Claims Services Agreement

The claims services agreement was with Tower Hill Claims Service, Inc. (THCS). The agreement

included the management, adjustment, payment requests and other various claims administrative duties

as necessary, other than those services administered by the MGA.

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Managing Services Agreement

The management services agreement was with THH. The agreement included the coordination of the

activities of the Company, development of corporate plans, legal counsel, executive management,

internal auditing management, contract negotiation/approval and other such services as deemed

necessary.

Tax Sharing Agreement

The Company, along with its parent, THH, filed a consolidated federal income tax return. The Company

was party to a consolidated tax agreement which met the requirements of SSAP No. 10. The tax

amount paid by the Company to the parent shall be equal to the amount the Company would have

paid had the Company filed an independent tax return. Tax payments by the Company were made to

the parent.

The Company and non-affiliates had the following agreement in effect as of December 31,

2005:

Custodial Agreement

The Company had a custodial agreement with Wachovia Bank which contained all necessary

elements required in Rule 69O-143.042(2), Florida Administrative Code.

Risk-Based Capital

Risk-based capital was reported by the Company at an adequate level.

FINANCIAL STATEMENTS PER EXAMINATION

The following pages contain financial statements showing the Company’s financial position as of

December 31, 2005, and the results of its operations for the year then ended as determined by this

examination. Adjustments made as a result of the examination are noted in the section of this report

captioned, “Comparative Analysis of Changes in Surplus.”

TOWER HILL SELECT INSURANCE COMPANY Assets

DECEMBER 31, 2005

ExaminationClassification Per Company Adjustments Per Examination

Cash & Short-term investments 19,377,100$ 19,377,100$

Investment income due and accrued 109,420 109,420

Agents' balances in the course of collection 10,701,748 10,701,748

Reinsurance recoverable 3,670,082 3,670,082

Net deferred tax asset 404,500 404,500

Aggregate write-ins for other than invested assets 3,000 3,000

Totals 34,265,850$ 34,265,850$

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TOWER HILL SELECT INSURANCE COMPANY Liabilities, Surplus and Other Funds

DECEMBER 31, 2005

Examination PerLiabilities Per Company Adjustments Examination

Losses 800,397$ 800,397$

Loss adjustment expenses 89,331 89,331

Other expenses 45,606 45,606

Taxes, licenses, and fees 1,007,632 1,007,632

Current federal and foreign income taxes 346,500 346,500

Unearned premiums 5,656,442 5,656,442

Ceded reinsurance premiums payable 6,015,943 6,015,943

Funds held by company under reinsurance treaties 6,117,174 6,117,174

Amounts withheld or retained by company for account of others 28,573 28,573

Provision for reinsurance 47,000 47,000

Payable to parent, subsidiaries and affiliates 92,040 92,040

Total liabilities 20,246,638$ 20,246,638$

Common capital stock 100,000$ 100,000$

Gross paid in and contributed surplus 13,900,000 13,900,000

Unassigned surplus 19,212 19,212

Surplus as regards policyholders 14,019,212 14,019,212

Total liabilities, capital and surplus 34,265,850$ 34,265,850$

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TOWER HILL SELECT INSURANCE COMPANY Statement of Income

DECEMBER 31, 2005

Underwriting Income

Premiums earned $6,581,745DEDUCTIONS:Losses incurred 4,114,489Loss expenses incurred 572,094Other underwriting expenses incurred 1,923,897Aggregate write-ins for underwriting deductions 0Total underwriting deductions $6,610,480

Net underwriting gain or (loss) ($28,735)

Investment Income

Net investment income earned $458,175Net realized capital gains or (losses) 0Net investment gain or (loss) $458,175

Net income before dividends to policyholders and before federal & foreign income taxes $429,441Dividends to policyholders 0Net Income, after dividends to policyholders, but before federal & foreign income taxes $429,441Federal & foreign income taxes 370,827

Net Income $58,614

Capital and Surplus Account

Surplus as regards policyholders, December 31 prior year $5,784,107

Gains and (Losses) in Surplus

Net Income $58,614Change in net deferred income tax 234,400Change in non-admitted assets (10,908)Change in provision for reinsurance (47,000)Capital changes: Paid in 0Surplus adjustments: Paid in 8,000,000Surplus adjustments: Transferred from capital 0Examination Adjustment 0Change in surplus as regards policyholders for the year $8,235,105

Surplus as regards policyholders, December 31 current year $14,019,212

14

15

COMMENTS ON FINANCIAL STATEMENTS

Liabilities

Losses and Loss Adjustment Expenses $889,728

An outside actuarial firm appointed by the Board of Directors, rendered an opinion that the amounts

carried in the balance sheet as of December 31, 2005, make a reasonable provision for all unpaid loss

and loss expense obligations of the Company under the terms of its policies and agreements.

TOWER HILL SELECT INSURANCE COMPANY

COMPARATIVE ANALYSIS OF CHANGES IN SURPLUS

DECEMBER 31, 2005

The following is a reconciliation of surplus as regardspolicyholders between that reported by the Company andas determined by the examination.

Surplus as Regards Policyholdersper December 31, 2005, Annual Statement $14,019,212

INCREASEPER PER (DECREASE)

COMPANY EXAM IN SURPLUS

ASSETS: No adjustments needed

LIABILITIES: No adjustments needed

Net Change in Surplus: 0

Surplus as Regards PolicyholdersDecember 31, 2005, Per Examination $14,019,212

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SUMMARY OF FINDINGS

Current examination comments and corrective action

There were no material items of interest or corrective action to be taken by the Company regarding

findings in the examination as of December 31, 2005.

SUBSEQUENT EVENTS

In early 2006, Board member Brian T. Sheekey, resigned and was replaced by Joel Curran.

18

CONCLUSION

The customary insurance examination practices and procedures as promulgated by the NAIC have

been followed in ascertaining the financial condition of Tower Hill Select Insurance Company as of

December 31, 2005, consistent with the insurance laws of the State of Florida.

Per examination findings, the Company’s Surplus as regards policyholders was $14,019,212, which

was in compliance with Section 624.408, Florida Statutes.

In addition to the undersigned, Michael Young, Financial Examiner/Analyst I; John C. Berry,

Financial Examiner/Analyst Supervisor; and Joseph Boor, FCAS, Actuary, participated in the

examination.

Respectfully submitted,

___________________________ Richard A. Shaffer Financial Specialist Florida Office of Insurance Regulation